The Right Side of the Gulf
Pinchas Landau from Jerusalem Post was pondering a strange Saudi reaction to the recent drop in the price of oil. With oil apparently heading to the mid-$40s one would expect OPEC to follow with more production cuts. Yet all that Saudi oil minister had to say to reporters was, "There is no need to worry, because the market is in a very healthy condition."
Landau dismisses one explanation after another and eventually reaches a conclusion that may surprise some people:
Saudi Arabia is now engaged in the biggest expansion of its oil industry in decades and intends to add some 25% to its existing production capacity by 2010. To sell this additional oil, it needs prices to remain at levels that don't choke off demand on the one hand or spur huge investments in additional global production on the other.
But Saudi has another, even more pressing, agenda. It is no less concerned about Iran's aggressiveness and nuclear ambitions than Israel - and for the same reason: the Shi'ite fundamentalist regime in Tehran is an existential threat to the Wahhabi Sunni kingdom. But it is the oil price boom that is driving Iran's rise. Prices in the $40s would seriously incommode Iran and the resultant social and economic stress may help undermine the regime. In other words, whether the market is "in a very healthy state" as prices fall through $50 depends on which side of the Persian/ Arab Gulf you sit on.
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